Thursday 17 October 2019

Trustees challenge ban on one-member pensions purchasing buy-to-lets

Action: Social Protection Minister Regina Doherty is due to sign new pension regulations. Photo: Paul Sherwood Photography
Action: Social Protection Minister Regina Doherty is due to sign new pension regulations. Photo: Paul Sherwood Photography
Charlie Weston

Charlie Weston

A body that represents pension trustees has been granted leave to apply for a judicial review of moves by the Social Protection minister to impose new EU regulations on one-member pension schemes.

Up to 100,000 self-directed pension schemes, which are favoured by directors and family-owned firms, are in existence.

The Association of Pension Trustees of Ireland wants to block parts of the IORP II directive, which effectively restrict one-member schemes from investing in property, typically buy-to-lets.

The new European Union IORP II (Institutions for Occupational Retirement Provision) directive is due to be signed into law here by Social Protection Minister Regina Doherty.

The directive will ban the schemes from long-term borrowing, and restrict their freedom to hold unregulated investments.

This will have the effect of blocking these one-member schemes from investing in property, something that has enraged the Association of Pension Trustees of Ireland (APTI).

The State decided not to seek a derogation on the parts of the new directive that refer to borrowings and the percentage of investments that must be regulated investments, as it did in the case of IROP I in 2005.

Applying to bespoke executive pensions and small self-administered schemes, regulators want the same governance standards for the single-member schemes as for much larger occupational plans.

But on Monday the Association of Pension Trustees of Ireland was granted an ex-parte motion for leave to apply for a judicial review of the transposition of the IORP II directive. The full hearing is due on May 28 next.

It is highly unusual for any body in this country to use the courts to block new regulations.

APTI's move effectively puts a stay on the parts of the directive in relation to borrowing in self-administered schemes and the level of regulated assets in the plans being signed into law.

APTI chairman Kevin Coghlan said it was disappointed the department would not meet it before the directive was transposed into law here.

He complained that the rollout of the directive was "indiscriminate".

The typical self-directed fund only has €450,000 in it.

The new rules mean this would restrict the investment in a buy-to-let to just €225,000, with no borrowings allowed to purchase the property.

He said: "Contrary to what has happened in other EU countries, Ireland's implementation of the directive will work contrary to its primary purposes of protecting consumers."

Mr Coghlan also said the new regulation would add an expensive regulatory burden to schemes.

But the department said the transposition of the directive will mean improvements to the regulation and governance of funded pension schemes.

The value of investments held in many schemes fell substantially during the financial crisis, it said.

This highlighted the need for stricter regulation and greater protections.

The department insisted that 98pc of single-member schemes are already compliant with the new rules.

Under the provisions of the directive assets must be predominantly invested on regulated markets.

The spokesperson said the new directive means small self-administered schemes, which are the only schemes currently allowed to borrow, will not be allowed to enter into new borrowing arrangements.

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